WASHINGTON—The FDIC, Federal Reserve and OCC have now opened the comment period as they seek feedback on a proposal put forth last week that raises capital standards for some of the nation’s largest financial institutions.
The changes will broadly raise the capital levels banks need to maintain, depending on each firm's risk profile. Analysts have said that while the heightened requirements apply to all banks with at least $100 billion in assets, the changes are expected to affect the biggest and most complex banks the most, they said.
In their statement, the agencies clarified that community banks would not be affected by the new rules.
Complies With Basel III
According to the agencies, the changes would implement the final components of the Basel III agreement, also known as the Basel III endgame. The proposal also follows the failure of a number of banks, the most high profile of which was Silicon Valley bank, in March of this year, and the agencies said the Additionally, following the banking turmoil in March 2023, the proposal seeks to further “strengthen the banking system by applying a broader set of capital requirements to more large banks.”
“In particular, the proposal would standardize aspects of the capital framework related to credit risk, market risk, operational risk, and financial derivative risk,” the agencies said. “Additionally, the proposal would require banks to include unrealized gains and losses from certain securities in their capital ratios. These banks would also be subject to the supplementary leverage ratio and the countercyclical capital buffer, if activated.”
Additional Details
According to the government:
- The proposed requirements are estimated to result in an aggregate 16% increase in common equity tier 1 capital requirements for affected bank holding companies, with the increase principally affecting the largest and most complex banks. The effects would vary for each bank based on its activities and risk profile.
- Most banks currently would have enough capital to meet the proposed requirements, the agencies noted.
- The proposal includes transition provisions to give banks sufficient time to adapt to the changes while minimizing any potential adverse impact. During the comment period, the agencies will collect data to further refine their estimate of the proposal's impact. Under the proposal, large banks would begin transitioning to the new framework on July 1, 2025, with full compliance starting July 1, 2028, the agencies said.
Additional Comment Sought
Separately, the Federal Reserve Board is also seeking comment on a proposal that would make certain adjustments to the calculation of the capital surcharge for the largest and most complex banks.
“The changes would better align the surcharge to each bank's systemic risk profile, in particular by measuring a bank's systemic importance averaged over the entire year, instead of only at the year-end value,” the FDIC said.
Comments on both proposals are due by November 30, 2023, which is more than 120 days for public comment.
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